Apple Subscribes to the Death of Subscriptions
posted Thursday Feb 17, 2011 by Scott Ertz
Apple this week announced a new subscription service for the iTunes library, wherein you can subscribe to services like News Corp.'s The Daily, the first and currently only iOS-based newspaper. This announcement, however, certainly paves the way for other publications to come behind and be successful. From the press release,
Subscriptions purchased from within the App Store will be sold using the same App Store billing system that has been used to buy billions of apps and In-App Purchases. Publishers set the price and length of subscription (weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly). Then with one-click, customers pick the length of subscription and are automatically charged based on their chosen length of commitment (weekly, monthly, etc.). Customers can review and manage all of their subscriptions from their personal account page, including canceling the automatic renewal of a subscription. Apple processes all payments, keeping the same 30 percent share that it does today for other In-App Purchases.
This sounds like a great idea, except for the publishers. Let's take into consideration Pandora. This is, generally, a free service. They do, however, offer a subscription service that allows for no advertisements, more skips, etc. Their margins are probably in the 5% range when you consider the service they offer and the cost they offer it for. Under this new subscription package, they will lose money on each subscription they sell - by quite a lot. Now, let's look at a magazine subscription through Amazon Kindle. There might be 10% margin on that, but they will also lose money under this new plan.
Why would Apple setup a subscription product that will bankrupt the subscription services? Hit the break to find out.
Apple offers iBooks - their e-book store. Running their own store on their own platform allowing for their own margin, bypassing their 30% commission to themselves, they could become the sole e-book provider on the iOS platform. In addition, they are already the leaders in digital music distribution, so creating a scenario where Pandora and Slacker cannot survive would only increase their hold on the market.
While this all sounds great if you are an Apple investor, it's not so great if you are an investor in their products. How many iPhone or iPad owners would have purchased those products if they knew down the line that Pandora, Kindle, Slack and other subscription-based services might not exist forever? Probably very few.
This does leave services like The Daily, whose margins are easily over 30% and supported by Apple. This change seems to allow for partners of Apple to success, and even thrive with little competition. Will the platform be able to succeed with a dwindling number of services available, though? The only way to know is to let it happen and see.